A computer business is interested in studying the relationship between their use of capital (K) and labor (L) and output of computers. The computer firm decides to hire a local consulting firm to conduct the necessary research and report of the results. The consulting firm strongly advises to use the natural log (ln) form of the CobbDouglas production function to estimate this relationship. The functional form of the Cobb-Douglas production function looks as the following: i. Q = A*KL The consulting firm needs to use the linear regression method to estimate the relationship. Since the Cobb-Douglas production function is non-linear the consulting firm takes the natural log (ln) of both sides of the equality sign in equation 1. The result is the linear form which looks like the following: ii. ln Q = ln A + *ln K + *ln L The Cobb-Douglas production function is now in a linear equation form which allows them to use linear regression method. The following is the estimated equation performed by the research team: iii. Ln Q = 3.596 + 0.385*ln K + 0.725*ln L (3.40) (4.15) R 2 = 0.7865 and DW = 2.06 Where Q = output of computers; K = number of machines used in production and L = number of labor units employed I production. The estimated coefficients are shown in the equation. The corresponding estimated t-statistics are in parentheses below the estimated regression coefficients. The coefficient of determination (R2 ) and the Durbin-Watson statistic (DW) are reported. The sample size, n = 60. a. Are the estimated coefficients on K & L statistically significant at = 0.05? Explain. Assume a 2-tailed hypothesis test. b. Report and interpret the R2 . c. Using equation "iii" What is output of computers, Q, if K = 200 & L = 550? d. Using the estimated coefficients in "equation iii" for A, & calculate Q using "equation 1". e. Using the marginal product equations of footnote 10 page 302 or my power points in Chapter 7 D2L, calculate the MPK & MPL. f. Referring to the same footnote calculate the output elasticity of K & L. g. For each output elasticity in part f if K increases by 10% how much does Q increase by? If L increases by 10% how much does Q increase by? Explain. h. Do the results of this study show that economies of scale are increasing, decreasing or constant? Explain.